Deck 4: The Theory of Individual Behavior

Question 1

The property that implies that indifference curves are convex to the origin is:

A) more is better.
B) completeness.
C) transitivity.
D) diminishing marginal rate of substitution.

Answer 1

D

Question 2

What is/are the important things that must be developed when characterizing consumer behavior?

A) Individual goals of the firm
B) Consumer opportunities
C) Individual goals of the firm and consumer opportunities
D) Consumer preferences and consumer opportunities

Answer 2

D

Question 3

The property that rules out indifference curves that cross is:

A) completeness.
B) transitivity.
C) diminishing marginal rate of substitution.
D) independence.

Answer 3

B

Question 4

The upper boundary of the budget set is the:

A) indifference curve.
B) origin.
C) budget line.
D) vertical intercept.

Question 5

Suppose a consumer with an income of $100 is faced with P_x = 1 and P_y = 1/2. What is the market rate of substitution between good X (horizontal axis) and good Y (vertical axis)?

A) 0.50
B) -1.0
C) -2.0
D) -4.0

Question 6

The absolute value of the slope of the indifference curve is called the:

A) marginal revenue.
B) average rate of substitution.
C) marginal rate of substitution.
D) marginal cost.

Question 7

The idea that a consumer is limited to selecting a bundle of goods that is affordable is captured by the:

A) budget constraint.
B) indifference curve.
C) consumer equilibrium.
D) price changes.

Question 8

The possible goods and services a consumer can afford to consume represents the:

A) consumer behavior.
B) consumer preferences.
C) consumer status.
D) consumer opportunities.

Question 9

The combinations of goods X and Y that are affordable to the consumer are defined by the:

A) consumption set.
B) income line.
C) budget constraint.
D) budget set.

Question 10

The affordable bundle that yields the greatest satisfaction to the consumer is:

A) the maximum bundle.
B) the equilibrium consumption bundle.
C) the allowable purchasing bundle.
D) the most popular bundle.

Question 11

An increase in the price of good X will have what effect on the budget line on a normal X-Y graph?

A) A parallel outward shift of the line
B) An increase in the vertical intercept
C) A decrease in the horizontal intercept
D) A parallel inward shift of the line

Question 12

A situation where a consumer says he does not know his preference ordering for bundles X and Y would violate the property of:

A) more is better.
B) completeness.
C) substitutability.
D) complementarity.

Question 13

If the price of good X is $10 and the price of good Y is $5, how much of good X will the consumer purchase if her income is $15?

A) 0
B) 2
C) 3
D) Cannot tell based on the above information.

Question 14

Individuals who purchase services and goods for the purpose of consumption are:

A) consumers.
B) managers.
C) workers.
D) agents.

Question 15

Which of the following is true?

A) Indifference curves may intersect.
B) At a point of consumer equilibrium, the MRS always equals 1.
C) If income increases, a consumer will always consume more of a good.
D) None of the statements is correct.

Question 16

Given that income is $200 and the price of good Y is $40, what is the vertical intercept of the budget line?

A) 8,000
B) 20
C) 1/5
D) 5

Question 17

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and P_x = $5, P_y = $10, X = 20, and M = 500?

A) 40
B) 25
C) 50
D) 75

Question 18

The difference between a price decrease and an increase in income is that

A) A price decrease does not affect the consumption of other goods, while an increase in income does.
B) An increase in income does not affect the slope of the budget line, while a decrease in price does change the slope.
C) A price decrease decreases real income, while an increase in income increases real income.
D) A price decrease leaves real income unchanged, while an increase in income increases real income.

Question 19

Joe prefers a three-pack of soda to a six-pack. What properties does this preference violate?

A) Completeness
B) Transitivity
C) More is better
D) Diminishing MRS

Question 20

Suppose the utility function for a firm manager is U = π + bQ, where Q is output, π is profit, and b is a positive constant. How would the firm's output compare with what it would be if the manager's objective was to maximize profit?

A) It would be greater than the profit-maximizing output.
B) It would be less than the profit-maximizing output.
C) It would be the same as the profit-maximizing output.
D) None of the statements is correct.

Question 21

Normally, owners of firms should try to induce their managers to care:

A) solely about output.
B) about profits and output.
C) solely about profits.
D) None of the statements associated with this question is correct.

Question 22

Which of the following pairs of goods is probably NOT an example of substitutes?

A) Raincoats and umbrellas
B) Chicken and steak
C) Potatoes and stuffing
D) Hamburgers and ketchup

Question 23

A worker's total earnings for one day is $100. He received a $20 fixed payment and consumes 14 hours of leisure. What is the hourly wage rate?

A) $10
B) $6
C) $4
D) $8

Question 24

After a price decrease for good X, the new consumer equilibrium level of good X will be:

A) higher than before the price change.
B) lower than before the price change.
C) indeterminate without more information.
D) the same as before the price change.

Question 25

The total earnings of a worker are represented by E = 100 + $10(24 - L), where E is earnings and L is the number of hours of leisure. How many hours of leisure are consumed if this worker's total earnings are $160?

A) 18 hours
B) 16 hours
C) 12 hours
D) 10 hours

Question 26

A price increase causes a consumer's "real" income to:

A) decrease.
B) increase.
C) remain unchanged.
D) vary along the budget line.

Question 27

What are the advantages to a firm of selling gift certificates?

A) Greater quantity sold if your good is a normal good.
B) Greater quantity sold if your good is an inferior good.
C) Reduced strain on the refund department and greater quantity sold if your good is a normal good.
D) Reduced strain on the refund department and greater quantity sold if your good is an inferior good.

Question 28

If you were running an advertising campaign for designer men's suits, you should target families with:

A) lower incomes.
B) higher incomes.
C) poor taste in clothing.
D) similar tastes and preferences.

Question 29

If a worker receives a fixed payment of $100 plus $10 for every hour she works, what is the maximum total earnings the worker can receive if she is restricted to a maximum of 12 hours of work per day?

A) $220
B) $120
C) $340
D) $125

Question 30

If a consumer's income decreases, what will happen to the budget line?

A) It will shift outward.
B) It will become steeper.
C) It will become flatter.
D) It will shift inward.

Question 31

If you wish to open a store and you do not like risk, it would be wise to sell:

A) only normal goods.
B) a mix of normal and inferior goods.
C) all inferior goods.
D) None of the statements is correct.

Question 32

The substitution effect isolates the change in the consumption of a good caused by:

A) the lower "real" income.
B) the change in consumer preferences.
C) the change in the market rate of substitution.
D) None of the statements is correct.

Question 33

Which of the following is most likely NOT an example of a normal good?

A) Lobster
B) Sports cars
C) Bus travel
D) Jacuzzis

Question 34

If the price of good X increases, what will happen to the budget line?

A) It will shift outward.
B) It will become steeper.
C) It will become flatter.
D) It will shift inward.

Question 35

If you are in the business of selling chicken and the price of chicken and the price of beef both were to drop dramatically, what should you do with your inventory level of chicken?

A) Keep it the same.
B) Decrease the inventory.
C) Increase the inventory.
D) Get into the beef business.

Question 36

If an increase in income causes a decrease in the consumption of good Y, we know that good Y is:

A) a normal good.
B) a substitute.
C) a complement.
D) an inferior good.

Question 37

How does a decrease in the price of good X affect the market rate of substitution between goods X and Y?

A) It increases.
B) It decreases.
C) It remains unchanged.
D) Indeterminable without more information.

Question 38

At the point of consumer equilibrium, the slope of the budget line is equal to the:

A) market rate of indifference.
B) indifference curve.
C) marginal rate of substitution.
D) consumer preference.

Question 39

The total earnings of a worker are represented by E = 100 + $10(24 - L), where E is earnings and L is the number of hours of leisure. How much will the worker earn if he takes 14 hours of leisure per day?

A) $150
B) $240
C) $100
D) $200

Question 40

Given that income is $500 and P_X = $20 and P_Y = $5, what is the market rate of substitution between goods X and Y?

A) 100
B) -4
C) -20
D) 25

Question 41

What is the horizontal intercept of the budget line, given that M = $1,000, P_X = $50, and P_Y = $40?

A) 2000.0
B) 20.0
C) 25.0
D) 11.11

Question 42

The budget set defines the combinations of good X and Y that:

A) are desirable to the consumer.
B) are affordable to the consumer.
C) maximize the consumer's utility.
D) maximize the supplier's profit.

Question 43

Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. What is the price to the worker of consuming an additional hour of leisure?

A) $24
B) $7
C) $12
D) $10

Question 44

The possibility of the endless cyclical preference is eliminated by the property of:

A) completeness.
B) more and better.
C) diminishing marginal rate of substitution.
D) transitivity.

Question 45

By the property of "more is better," the consumer views the products under consideration as:

A) goods.
B) bads.
C) inferior goods.
D) normal.

Question 46

The maximum quantity of good X that is affordable is:

A) M/P_Y.
B) M/X.
C) M/P_X.
D) P_YY.

Question 47

Along the same indifference curve, MRS is ________ as more of one good is obtained.

A) constant
B) increasing
C) decreasing
D) varying irregularly

Question 48

Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. The fixed payment for this worker is:

A) $7.
B) $24.
C) $60.
D) $0.

Question 49

The marginal rate of substitution (MRS) determines the rate at which a consumer is willing to substitute between two goods in order to achieve:

A) a higher level of satisfaction.
B) a lower level of satisfaction.
C) the same level of satisfaction.
D) None of the statements is correct.

Question 50

The slope of the budget line represents:

A) the marginal rate of substitution.
B) the market rate of substitution.
C) the budget rate of substitution.
D) the opportunity rate of substitution.

Question 51

Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. What is the maximum this worker can earn in three (3) days?

A) $519
B) $417
C) $228
D) $684

Question 52

The horizontal intercept of the budget line is:

A) -P_X/P_Y.
B) M/P_X.
C) M/P_Y.
D) P_YY.

Question 53

Consumers adjust their purchasing behavior so that:

A) they purchase as many scarce resources as possible.
B) marginal rate of substitution is maximized.
C) marginal rate of substitution is minimized.
D) the ratio of prices they pay equals their marginal rate of substitution.

Question 54

By the property of "more is better" and transitivity, indifference curves:

A) can intersect one another only once.
B) can intersect one another only twice.
C) do not intersect one another.
D) may overlap one another.

Question 55

Some individuals choose to undertake risky prospects while others choose safer ones because they have different:

A) degrees of transitivity.
B) marginal rates of substitution between risk and reward.
C) income elasticities.
D) marginal utilities.

Question 56

P_XX + P_YY = M is called:

A) an indifference curve.
B) an opportunity set.
C) a budget set.
D) a budget line.

Question 57

Diminishing marginal rate of substitution implies that indifference curves are:

A) convex from the origin.
B) concave from the origin.
C) either convex or concave from the origin.
D) straight line.

Question 58

Managers can get workers to work longer hours by:

A) offering overtime pay.
B) offering a higher flat wage rate on all hours worked.
C) decreasing the hourly wage scale.
D) None of the statements is correct.

Question 59

By the transitivity property, if A B and B C then:

A) A
C
B) A
C
C) A
C
D) B
C

Question 60

Suppose earnings are given by E = $60 + $7(24 - L), where E is earnings and L is the hours of leisure. How much is this person working if her daily earnings are $116?

A) 18 hours
B) 16 hours
C) 12 hours
D) 8 hours

Question 61

If income increases, the budget line:

A) shifts to the right.
B) shifts to the left.
C) rotates clockwise.
D) rotates counterclockwise.

Question 62

If an increase in the price of good X leads to a decrease in the consumption of good Y, then goods X and Y are called

A) substitutes.
B) complements.
C) normal goods.
D) inferior goods.

Question 63

Which is more preferred between a cash gift and an in-kind gift?

A) A cash gift.
B) An in-kind gift.
C) Both are equally preferred.
D) None of the statements is correct.

Question 64

If income increases, then the:

A) budget line rotates counterclockwise.
B) budget line rotates clockwise.
C) budget line shifts to the right.
D) opportunity set contracts.

Question 65

If income decreases, then:

A) the budget line remains the same.
B) the vertical intercept of the budget line shifts downward.
C) the horizontal intercept of the budget line shifts upward.
D) the slope of the budget line becomes steeper.

Question 66

Indifference curves further from the origin imply:

A) a higher level of satisfaction.
B) a lower level of satisfaction.
C) the same level of satisfaction as any other curve.
D) None of the statements is correct.

Question 67

If a consumer is given a $10 gift certificate good for items in store X, and all items in store X are inferior goods, then the consumer desires to consume:

A) more goods in store X.
B) fewer goods in store X.
C) the same amount of goods in store X.
D) None of the statements is correct.

Question 68

Under the buy one, get one free regime, the:

A) budget line rotates counterclockwise.
B) price is reduced by 50 percent.
C) budget set expands.
D) indifference curve is changed.

Question 69

If the price of a good rises, then the equilibrium consumption of that good:

A) increases if it is an inferior good.
B) decreases if it is a normal good.
C) remains the same.
D) None of the statements is correct.

Question 70

If an increase in the price of good X leads to an increase in the consumption of good Y, then goods X and Y are called:

A) substitutes.
B) complements.
C) normal goods.
D) inferior goods.

Question 71

If the price of computers decreases, then the:

A) sales of a substitute, such as a telephone, decrease.
B) sales of a substitute, such as a telephone, increase.
C) inventory of computers increases.
D) inventory of computer software increases.

Question 72

If you sell an inferior good, offering to sell gift certificates to those looking for a gift may result in:

A) a greater quantity sold than before the customer is given a gift certificate.
B) a greater quantity sold than if the customer resorts to giving a cash gift.
C) a smaller quantity sold than before the customer is given a gift certificate.
D) a smaller quantity sold than if the customer resorts to giving a cash gift.

Question 73

An in-kind gift causes the budget line to:

A) shift to the right in a parallel fashion.
B) shift to the left in a parallel fashion.
C) rotate counterclockwise.
D) None of the statements is correct.

Question 74

At the equilibrium consumption bundle, which of the following holds?

A) MRS_X,Y = P_X/P_Y.
B) MRS_X,Y = -P_X/P_Y.
C) MRS_X,Y = -P_Y/P_X.
D) MRS_X,Y = P_Y/P_X.

Question 75

A cash gift causes the budget line to:

A) shift to the right in a parallel fashion.
B) shift to the left in a parallel fashion.
C) rotate clockwise.
D) None of the statements is correct.

Question 76

If a consumer is given a $10 gift certificate good only for items in store X, and all items in store X are normal goods, then the consumer desires to consume:

A) more goods in store X.
B) fewer goods in store X.
C) the same amount of goods in store X.
D) None of the statements is correct.

Question 77

The equilibrium consumption bundle is:

A) the bundle where the budget line and the indifference curve meet.
B) the affordable bundle that yields the greatest satisfaction to the consumer.
C) any bundle that is the farthest from the origin.
D) any affordable bundle in the budget set.

Question 78

If the slope of the indifference curve is steeper than the slope of the budget line, and X is on the horizontal axis:

A) the consumer is willing to give up more of good Y to get an additional unit of good X than is necessary under the current market prices.
B) MRS < P_X/P_Y.
C) MRS < -P_X/P_Y.
D) the consumer is willing to give up more of good X to get an additional unit of good Y than is necessary under the current market prices.

Question 79

When the price of a good increases with other things unchanged, the real income of the consumer:

A) is unchanged.
B) increases.
C) decreases.
D) None of the statements is correct.

Question 80

The substitution effect reflects how a consumer will react to a different:

A) marginal rate of substitution.
B) market rate of substitution.
C) level of real income.
D) level of nominal income.